August 6, 2009

While the Health Care Reform debate spreads and confuses and drags on, we are going to simultaneously see actual cost-control reform enacted and carried out right in front of us.

It's like a play where a group of doctors on the stage argue loudly about how to treat dozens of patients struck by a slow and deadly disease (Inflation Plague), but then in the foreground some in the audience notice a nurse and a doctor arrive and calmly begin treating one of the patients.

We are going to witness right now how Universal Coverage in a state which must balance its budget entails forced real change.

The Federal Government doesn't have to balance its budget quickly. Massachusetts must.

Now, the part of this Global Payment system that stands out in the report is how they hope to manage incentives!

But some worry "global payment" sounds suspiciously like the managed care "capitated" HMO plans of the 1990s. Those plans were also based on paying health care providers a fixed amount per patient.That experiment failed, because it gave doctors and hospitals an incentive to hold back on care.To avoid a repeat of that experience, advocates of global payment say health providers will have to be watched closely."You need someone monitoring this," says Nancy Kane of the Harvard School of Public Health. "You can't just walk away because you've set the limit."Kane is a health care finance expert who also served on the recent Massachusetts Payment Reform Commission.She says there are ways these days to prevent stinting on care."There's a lot of quality measuring that can go on now that didn't used to be available," she says. "We now have electronic medical records. It's easier to monitor what's going on. So I think the whole reporting system and the intention to maintain a monitoring infrastructure is all critical to avoiding the bad days of managed care."

The irony here is that a Global Payment system will lead to increasing costs later, the opposite of its intent. Here's why:

Since the Global Payment -- a recurring monthly or annual payment to providers for patients (presumably by age) -- is fixed, it is independent of condition. Therefore a patient with an expensive-to-treat condition is likely to be ignored or given palliative care unless likely to live long enough to eventually pay off the cost via the recurring fixed payment, and also only if they remain with that provider. Therefore the incentive to the provider is not to treat this condition, unless the recurring payment is high enough and the patient is guaranteed to remain with that provider long enough afterwards.

This quandary would then result in political pressure to increase state support for payments in order to try to induce providers to treat these more expensive conditions for sicker patients.

So, the necessary determination of minimum Global payment-by-age amounts would become a political decision! Even if off-loaded to a board, it will be politicized.

Yet Kane mentions (excerpt above) that a means for quality measuring (electronic records) is in place. In other words, much of the necessary initial structure needed to pay for quality/value instead of just capitation (Global payment), is in place!

Once you being to measure outcomes, then you can structure incentives for outcomes.

It is far less political and less destined-for-trouble to pay for successful outcomes measured over time intervals -- so that the last few increments of pay for a fully-successful treatment happen only if the patient lives long enough or remains cured long enough to meet the longer success-over-time criteria, which for many conditions would have the last increments at a year or longer. There is pay for shorter periods of success, but more pay for longer periods of success.

Compare this to trying to choose levels of global payments by age, which due to state subsidy could become one of the hottest political decisions each year. (Update: the WSJ has a detailed look at France's excellent system, which is shifting away from Global Payments in one area: "Ironically, France is actually in the midst of shifting to a fee-for-service system for its state-run hospitals. The hope is that it will be easier for the government to track if the money is being spent efficiently, compared with the old system of simply giving hospitals an annual lump-sum payment.")

The two systems, Global payments vs. Pay-for-Outcomes-Over-Time, have some similarity, yes, but a profound difference also. Pay-for-Outcomes-Over-Time doesn't try to decide politically or at a board exactly what the pay levels should be. Instead a normal bidding process (see "Update 7-10, 7-17 -- Setting Prices" here) sets up pay levels for outcomes over time in an ongoing, democratic way involving doctors and automatically comparing costs.

The fact that part of the quality measuring apparatus is in place makes the necessary next pieces of reform quite easy -- paying for outcomes based on current condition, along with incentives specifically for health maintenance. These will solve the critical problem of having the right incentives in place to care for very sick patients -- if it's reasonably possible to improve the patient's condition, then the pay-for-outcome system will result in trying to do so, without any regulatory oversight needed!

Regulatory oversight will fail all too often, by nature. Just as the FDA fails to protect citizens until after many deaths accumulate, regulatory oversight is slow and can't see everything until after it is obvious in hindsight. A structure to pay-for-outcome would work better.